Looking to Diversify in Europe? Here's How
More and more U.S. investors are moving money across the pond, with the European Union making up 25 percent of the total global stock market capitalization of around $55 trillion, while the U.S. still holds supremacy, with 33 percent, according to data from Deutsche Bank Research.
European stock markets are growing fast, with the average rate of growth of EU securities holdings as high as 17 percent over the past five years, the data shows.
Of the total foreign stocks held by U.S. individuals, more than 40 percent are from the EU, according to Deutsche Bank Research.
And the trend is likely to continue, with both institutional and individual U.S. investors looking to diversify in Europe.
"We definitely see opportunities here, not only that, we see business. Europe remains a good market to invest in," Paul Strzelecki, managing director at the recently-launched Yorkville Advisors UK, told CNBC.com.
London-based Yorkville Advisors UK is an investment manager for Yorkville Advisors Global Investments, a $1billion fund based in New Jersey, and as a non-leveraged fund is investing across Europe and looking for opportunities in all sectors.
"It would not surprise me to see people putting money to work in Europe in quite an aggressive way," Strzelecki said.
Ways to Do It
There are a range of options for individual U.S. investors seeking returns in Europe, the easiest of them being to open an account with a major broker, either online or in person, depending on the broker.
At Vanguard, for instance, everything is done via the Internet or the telephone, while Charles Schwab offers the service from its local branches as well.
With these accounts, U.S. investors can buy and sell individual European shares but need to pay attention to various conditions, as some European shares may have a minimum lot requirement, and some exchanges, a minimum trade amount.
But trading in individual stocks is only for those with enough money to buy different stocks across sectors, brokers say.
"With $10,000 -- or even $50,000 -- it is difficult to adequately diversify among enough companies to provide a reasonable level of risk," Rebecca Cohen, Vanguard spokeswoman, said.
A mutual fund is an alternative to buying individual European stocks and the costs for an investor are significantly lower than the brokerage costs to trade just a handful of stocks, Cohen said.
Another, and easier, way to take advantage of European stocks is to trade in their American Depositary Receipts, or ADRs -- foreign shares trading on the U.S. markets -- which most major European companies have, but this would mean missing out on the smaller and sometimes higher-yielding companies.
One word of advice for those starting out in Europe is to do it in areas that they know well, Strzelecki said, adding that Yorkville does not rely only on investment bankers but also has consultants on various investment sectors.
"We try to invest with the flavor of fundamentalism. You can overcome some of the issues on cultures by understanding the sectors," he said.